Air Fail: Why Are There So Many Airline Bankruptcies?

[marmar]

from Slate:



Air Fail
Blame Jimmy Carter for all the airline bankruptcies. Or better yet, thank him.

By Matthew Yglesias | Posted Thursday, Dec. 1, 2011, at 3:51 PM ET


American Airlines’ parent company, AMR Corporation, filed for Chapter 11 bankruptcy protection on Tuesday, surprising exactly no one. A major corporate bankruptcy is normally a bit of a shock, but there’s nothing shocking about bankruptcy in the American passenger air business, where filings are way more common than crashes. Frontier Airlines filed in 2008, Delta and Northwest both filed in 2005 (and later merged), and United and U.S. Airways filed in 2002 and then again in 2004. TWA went down in 2001 as part of an acquisition by the now-bankrupt American Airlines. Pan Am, of course, went out of business entirely 10 years before that, only to re-emerge as a short-lived television show about the glories of air travel in the era before constant bankruptcy. And those are only the big ones. All told there have been 189 airline bankruptcy filings in America since 1990. Why?

You can blame Jimmy Carter for the bankruptcies. Or perhaps you ought to thank him.

Airline bankruptcies are a bit unusual in that they’re aimed more at labor unions than at creditors. American Airlines is certainly burdened by debts, but it’s been a bad credit risk for long enough that most of its debt is “secured”—backed by physical assets like airplanes that can be repossessed if it tries to default. So there are some unsecured creditors who’ll lose out, but the real aim of the filing, in the words of S&P 500 analyst Philip Baggaley is to “emerge as a somewhat smaller airline with more competitive labor costs.”

American’s labor costs are uncompetitive because it didn’t go bankrupt a decade ago when everyone else was doing it. Instead the airline and its unions reached an agreement on moderate concessions that allowed it to avoid bankruptcy. That was a point of pride for years but laid the groundwork for the airline’s current problems. Having made pre-emptive concessions in the past that saved the company, American’s unions were understandably reluctant to agree to further givebacks even though American’s cost structure remained higher than its competitors. Bankruptcy gives the company new legal options to put the squeeze on its workforce. ..............(more)

The complete piece is at: http://www.slate.com/articles/business/moneybox/2011/12/blame_jimmy_carter_for_all_the_airline_bankruptcies_or_better_yet_thank_him_.html

[xchrom]

1. recommend

[Atman]

2. K&R

:kick:

[Tesha]

3. Because air travel for the masses is fundamentally unsustainable as liquid fuels become expensive...

...and eventually, rare.

Soon, for most of us, it's gonna be trains and ocean liners until
someone invents the Transporter.

Tesha

[Kolesar]

4. Airlines would not exist if the taxpayers were not dumping money into the air travel business

We pay for airports, we fund the FAA, we paid a $40 billion bailout in 2001, we even pay the tickets of people who fly from remote rural airports. For that matter, we pay the development costs of airplanes through the defense budget: the Boeing KC-135 became the 707 passenger jet.

So, my money is paying to bring tourist dollars to Disney World. F**k

[Lex1775]

6. Just a slight correction

The KC-135 didn't result in the 707. Both aircraft were offshoots of Boeing's 367-80 protoype which was originally designed to show the advantages of civilian commercial transport.

[ParkieDem]

7. You're only partly correct ...

... on the bailout, yes (although was it really $40 billion?)

The FAA is primarily funded through taxes on airline tickets and taxes on jet fuel. The FAA also provides some funding to airports, but a great deal of airport funding is via bonds or state/local governments.

You are correct on the crazy EAS program.

But, to a large extent, you only fund the air travel business via excise taxes if you fly. As far as your income taxes are concerned, this is a much smaller portion of the business.

[Name removed]

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